The allure of investing in gold as a conveyance and indication of wealth can be appreciated when the history of the precious metal is examined during the past century. After millennia of recorded use as an instrument of currency, the 1914 assassination of Archduke Franz Ferdinand signaled as much the end of gold as an international standard of money as it did the start of World War I. With the breakdown of a common regard for gold, individual countries found themselves forced to attune and adjust their currencies to compensate for the demands of war, resulting in wild inflation. The effects on Germany and Russia were especially disastrous, and would come to haunt the world again.
It would not be until the years following World War II that the gold standard was re-established internationally as sound fiscal policy. It was however, a brief respite, as 1971 would witness the United States abandoning the dollar’s basis in gold ($35 per troy ounce under the Bretton Woods system) and making the dollar an instrument of fiat currency. By 2000, all other countries had followed the United States’ lead in severing their respective currencies from gold.
And yet despite – some will argue “because of” – the tumult of politics near and far, investing in gold continued and still continues to be the most trusted, the most secure and the most honored means of demonstrating and negotiating financial strength. If the world suffered for blinking at gold’s stability in 1914, there is almost a universal wisdom for investing in gold in 2013 and beyond.
The Aurelian Appeal of a Precious Metal
The virtues of gold as a precious metals commodity are myriad. To invest in gold is to invest in a material of considerable intrinsic value, without it being indexed to any other tangible resource. Gold can be readily traded with confidence and assurance, and it lends itself well toward transmission by inheritance to future generations. Gold is an adaptable medium: be it cast in bullion or ingots, or crafted into fine jewelry or minted as coin, gold holds its own regardless of its physical shape and function.
Investing in gold has proven to be a durable hedge against periods of both inflation and deflation. During periods of highest inflation domestically, real returns of gold investments reached more than 130% on the Dow Jones Averages, although many other investments lost considerable value. Nor have stagnant and depressed economies caused gold to lose its luster. Indeed: deflationary periods have seen gold rise sharply in terms of its purchasing power.
As discussed earlier, investing in gold has proven to endure political and economic instabilities, be they in small-town America or on a global scale. The trend worldwide is that demand for gold is growing, especially in markets such as India and China.
Gold in 2013 and the Foreseeable Future
Investing in gold is not without risk, as the price of gold has witnessed significant short-term volatility in the calendar year ending July 2013. After hitting a high of $1,800 the previous autumn, gold sank to $1,200 and as of this writing is struggling to win back its losses. A widespread perception of stalled mining and limited stockpiles has also wrecked momentary havoc with the gold market. The gold mining industry is striving to maintain pace, as financial backing is sought for the surveying, exploration and development of new mining sites.
Consequently, those pondering their portfolios of precious metals may consider mining stocks as an avenue of investing in gold. There is always a risk of losing the investment due to human error, corporate mismanagement, or the all-too-possible discovery that a promising find has scarcely yielded. However, there is also the probability of a successful strike: something which has beckoned the adventurous investor for generations. For this reason, many analysts still consider gold mining stocks to be a good – if also unpredictable – investment.
If the gold bug hasn’t bit with full-bore fever, those looking at investing in gold will likely find that ingots, gold ETFs, and gold-backed IRAs will be sound enough for their chosen forms of investment. As all of these are small, easy to store and transport, and carry none of the significant expenses incurred by gold bullion, they are attractive choices for the individual investor. More traditional vessels such as coins and jewelry also continue to be popular.
With economies in a downturn here and abroad, gold as an investment is weathering the storm and proving to be an ever-solid, ever-attractive instrument of affluence. Despite the bearish turn of recent months, gold holds a bright and shining future as a reliable means of storing wealth for the long haul.